Best mortgage deals for buy-to-let investors
Buy-to-let investors tend to get mortgages on an interest only basis, though capital repayment options are also available.
Our roundup of the best deals, below, is based on someone borrowing on an interest-only basis against a £250,000-property for 20 years, though you can compare other property prices, repayment periods and loan-to-value (LTV) ratios at moneywise.co.uk/compare.
Our buyer is paying fees up-front.
Accord Mortgages has one of the best fixed-rate deals for buy to let investors, charging 2.19% until January 2019. With a £1,158 initial fee and monthly repayments of £342 our buyer will pay £9,366 over the first two years. After the fixed-rate period, the standard variable rate of 5.54% implies repayments will rise to £804, though that might change.
Alternatively, Virgin Money will lend at 2.45%, also fixed until January 2019, but with a lower £709 fee. That’ll cost £383 per month, and £9,901 over the first two years. The SVR is currently 4.54%, and if it doesn’t change then monthly repayments will rise to £645 per month.
If you’re willing to take your chances with a variable rate mortgage then Platform will charge 1.84% over the base rate for two years. That’s currently £366 per month. Including the £1,033 initial fee our buyer will have paid £9,817 after two years. After two years the 5.5% SVR (variable) will push rates to £793.
Deals are slightly more attractive with a 40% deposit, with rates available for well under 2%. However, these headline-grabbers carry chunky fees, and often aren’t the best value deals when you crunch the numbers.
For example, Accord Mortgages lends at 1.64%, or £205 a month to borrow £150,000, fixed for two years. However, borrowers will need to pay £2,203 in initial fees, so the cost over two years is £7,123. The SVR is relatively high at 5.54% SVR, meaning repayments will triple, rising to £655 so it’s vital to make a note to remortgage.
Skipton’s 1.84% deal, fixed until November 2018, works out cheaper thanks to a relatively low £995 fee. It costs £230 a month and £6,515 over two years. A 4.94% SVR implies repayments will rise to £578, if the base rate doesn’t change when the fixed term expires.
Virgin Money has the leading variable rate, if you factor in the £709 fee. The rate is 1.8%, or 1.55% on top of the Bank of England base rate. At 60% LTV monthly repayments are £225 and the two year cost is £6,109. Repayments will increase to £530 providing the SVR holds at its current rate (4.54%).
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.